Picasso.com

The Internet breaks open the art market.

The business press played the birth announcement of sothebys.com last month as another story about the frenzy for e-commerce. The snooty British auction house, founded in 1744, was going to remodel itself after eBay, the 24 hour electronic garage sale! Out the window went centuries of snobbery, mystique, and pretension. Up, up went Sotheby’s stock, on the basis of a Web site that didn’t yet exist and that wouldn’t be selling anything for six months.

But the dotcomming of Sotheby’s is about more than a fusty old company chasing fresh loot. It’s a harbinger of the dramatic transformation that’s about to sweep the entire business of buying and selling rare and precious things. The market for art, which has long behaved very differently from markets for other kinds of goods, is about to be transformed by the irresistible force of the Internet. The upscaling of the online auction fad is one aspect of this change, but perhaps only a small part of it.

The trade in art has always been anomalous in economic terms. What’s unusual about the business is its secretiveness. Vendors of most other kinds of goods–household appliances, cut-up chicken parts, and condominiums–generally advertise what they have for sale and how much it costs. Transparency benefits consumers, who can compare prices, features, and quality. If you want to buy a 19 inch color television set, you start by checking the newspaper for advertised prices. In markets where price comparisons aren’t easily available–Oriental rugs or new cars–buyers are at a conspicuous disadvantage. The buying experience is unpleasant because consumers suspect they’re being fleeced. Market secrecy tends to break down, because sellers have to reveal their prices if their competitors do. In recent years, this has happened with cars and even Persian carpets.

In the art world, however, secrecy has survived. Art dealers seldom advertise prices and sometimes won’t even quote them if they’re not convinced a buyer is on the hook. There was an outcry among gallery owners a few years ago, when New York passed a law requiring them to post prices for works that are actually on display. Most follow it, but grudgingly. “We’re sheepish about posting prices,” says a dealer I know at a high-end SoHo gallery. “Why give out free information?” And don’t even bother asking what they have for sale. At Wildenstein & Co., which has the world’s largest private collection of Old Master and Impressionist paintings, not even employees are allowed to know what’s inside the vaults.

T here are a variety of reasons for these practices–historical, cultural, and economic. Art dealing as a profession originated mainly in France, where it began its long association with social snobbery. The art dealer cultivates his aura (and the more mystical aura of the art object) by casting himself as a connoisseur rather than as a merchant. He flatters his buyer as a person of taste and distinction rather than a mere customer. As a consequence, buyers tend not to behave the way consumers do in other fields. But the most potent factor is the economic logic of selling rare or unique goods. Comparison shopping is hard. Even in the case of multiple-edition prints, where a sizable number of identical lithographs may exist, you’re not likely to find them competitively priced in adjoining storefronts. And virtually everything else is subjective. Which is better: a green Warhol Marilyn or a red Warhol Marilyn? A 1964 Warhol or a 1964 Rauschenberg? By making intrinsically difficult comparisons nearly impossible, dealers augment their power over the market. In other words, they can get prices higher than what they would get if everything were laid on the table with a price tag attached.

The one check on the power of dealers has always been auctions, where individuals can buy and sell, bidding is public, and prices are published. Selling more art at auctions and expanding the number of people who can participate in auctions, which is what Sotheby’s is trying to do by holding them online, will bring more efficiency (if less drama) to the art market. But the real way the Internet stands to revolutionize the economics of the art business is simply by breaking down the secrecy that prevails in the nonauction sector of the market. If some dealers are willing to sell art to buyers via the Internet–and almost all of them are now fanatically eager to do so–those who remain coy about what they have and how much they want for it will put themselves at a competitive disadvantage. They’ll be denying themselves access to the fastest expanding sector of the international art market.

The chief vehicle for this transformation isn’t Sotheby’s. It’s ArtNet, on online service which now provides access to the wares of 700 dealers around the world, and which is adding new galleries at the rate of 70 a month. ArtNet is the brainchild of Hans Neuendorf, a German dealer who started the first international art fair, in Cologne in 1967–the first actual art market. A few years ago, Neuendorf founded ArtNet as a database for auction results. Now he has turned it into a consortium of galleries offering wares directly over the Internet. The company is headed for–you guessed it–an IPO. Neuendorf says he wants to challenge the way the art business works directly. “This tendency to keep everything secret, to take little advantages of information, has resulted in a suffocation of the market,” he says. “If you wanted to set up a system to keep people away from buying art, it would be very close to what we have now.”

The theory behind Neuendorf’s business is that the Web will expand the market not only by spreading information but also by making art into a more liquid asset. Web auctions like Sotheby’s and the competitor Neuendorf plans to launch in March should significantly reduce the transaction costs associated with selling art–for dealers and private individuals. The seller doesn’t have to pay a commission, as in an off-line auction. Gone will be the need for expensive catalogs, transparencies FedExed around the world, and multiple packing, shipping, and insurance costs as the work goes from gallery to auction house to purchaser. Today the sale of a work of art can add 25 percent to the purchase price and take six months; an efficient online sale might add only 10 percent and take but a few days.

There are a variety of smaller dealer consortiums, similar in principle to ArtNet, which allow buyers to browse gallery stock and view whole exhibitions online. They encourage the kind of comparison shopping that was previously impossible in the art world. Not all galleries give prices, but enough do to allow the buyer the upper hand occasionally. For example, looking up the artist Chuck Close, I found nine different lithographs for sale online, including three copies from the same edition of 50 prints titled “Lucas Woodcut.” The galleries offering this print advertised it at shockingly different prices. The Pace Gallery on 57th Street in New York City had it for $5,000. Jim Kempner Fine Arts, a gallery in Chelsea specializing in 20th century prints, had it for $12,500. A third gallery, Kunsthaus Schaller in Stuttgart, Germany, had it for 38,000 deutsche marks, which is just over $22,000.

In the art business, old ways die hard. I e-mailed all three galleries, asking them to explain the disparity in their prices. Pace responded that they had made a mistake. Their price was $18,000. Jim Kempner also claimed a misunderstanding, saying that his price, curiously enough, was really the same as Pace’s–$18,000. He subsequently offered to sell it to me for $16,000. (I never heard back from the gallery in Germany). I’m not sure how with a pair of e-mail messages I managed to effectively double the price of Chuck Close lithographs. But you can see why dealers are reluctant to give out prices: It makes it harder for them to raise them at a moment’s notice when an artist’s stock rises, as Close’s did when he had a big retrospective at the Museum of Modern Art a few months ago. In any case, if I had actually been interested in buying the print, with the help of the Web, I would have been in a far better position to negotiate a favorable price.

What, you might ask, do dealers stand to gain from making information available online if it merely gives leverage to their customers? The answer is that the Internet stands to expand the market as a whole more than enough to compensate them for having to compete with each other. A gallery in Geneva or Berlin can now sell artwork to someone who never leaves Iowa City. Some even think that while Internet competition may drive prices down initially, prices will rise as sellers are matched with buyers and the market clears. Neuendorf, for one, says he expects the Web to drive art prices through the roof. Judging from what Pez dispensers are fetching on eBay, he might just be right.